(MONEY Magazine) – Frank DeAngelis attributes any financial savviness he possesses to his parents, a barbershop owner and a schoolteacher, whose penny-pinching paid the college and graduate school bills for two sons. The 34-year-old law partner and his wife Susan, 33, a day-care center owner, would like to do the same for their daughters, but the Montville, N.J. couple also hope to retire early and buy a vacation home. Frank doubts the stock market is going to get them there. "They say the market has historically returned 8%," he says. "I just hope I'm in the right historical period."

Where They Are Now

The couple--who will earn a combined $200,000 in 2005--max out Frank's 401(k) each year, but with no company match, that diligence has netted them only $88,000. They now make too much to contribute more to their $29,000 in Roth IRAs. They've built up $27,000 in savings, a three- to five-month buffer, estimates Frank. And they just started putting away college money in CDs for Katie, 2½, and Emma, seven months. Aside from $2,000 that Frank put into Boeing, Yahoo and Google shares, however, they don't hold stocks or bonds outside their retirement accounts. Given their income, they feel they could be doing more. That's a distinct possibility: Unlike Frank's parents, the couple don't stick to a budget. They have no trouble paying $5,000 a month in mortgage and other big expenses, but they've got $7,000 in credit-card debt, albeit at teaser interest rates.

Frank and Susan aren't as frugal as they should be, says Redbank, N.J. certified financial planner Robert Walsh. They should aim to save at least 10% of their income annually. "A system like Quicken would help them account for cash flow and cut monthly expenses," says Walsh. He wants the couple to pay off the credit cards and increase their emergency fund to $60,000, split between a tax-free money-market fund and U.S. Savings Bonds. "His income is tied to profits; she's a small business owner--they're taking risks," Walsh notes. "They need a safety net." After that, maxing out a solo 401(k) for Susan is a must. Because of their income, it's the only retirement savings option available that will save them money come tax time.

As for the mix in their portfolio, Susan's IRA needs to be revisited--the $26,000 is spread across nine so-so stock funds. Walsh recommends moving everything into Oakmark Equity & Income I, which maintains a 60-40 mix of stocks and bonds. The couple have little interest in managing and rebalancing this portfolio, so Walsh says, "It's better to put it all in one good fund." For Frank's 401(k) portfolio, now almost entirely in funds that own big stocks, Walsh would like international and mid-size stock funds to play a larger role. He would also put 20% of the portfolio in the Harbor Bond fund. Forget individual stocks, Walsh says. "Frank and Susan don't have the time, nor do they have the net worth." After increasing their emergency fund and maxing out their 401(k)s, the DeAngelises can save for the girls' education, but not with CDs. Walsh suggests low-cost Vanguard index funds or, if the couple are making lump-sum deposits, exchange-traded funds, which also come cheap. The beach house can wait; they haven't even hit their peak earning years.